Analysis of Dell Case

Yuchi Fan 121031

Analysis of Dell case

1. Dell is faced with profitability pressures. The company’s operating margin declined moderately to 5% in fiscal year 2007 while its ROE decreased moderated by 7 percentage points to 62% in fiscal year 2007. Despite the profitability pressures, Dell maintains strong credit protection metrics with a healthy level of operating cash inflows and a moderate level of bond borrowings.

Revenues from desktop PCs, which is Dell’s major revenue source and represent 34% of Dell’s total revenues, declined by 8% in fiscal year 2007. This reflects the overall decreased market demand for traditional PCs. This also reflects Dell's decision not to pursue aggressively the low-end PC market in order to maintain its profit margins. Dell’s acquisition of ZING Systems reflects its strategy to diversify and shift toward better margin enterprise solutions.

2. Operating margins improved to 5.6% in fiscal year 2008 from 5.3% in fiscal year 2007. ROE improved to 73% in fiscal year 2008 from 62% in fiscal year 2007.

American revenue, which is Dell’s major revenue source and represents 61% of Dell’s total revenues, grew slightly by 3% in fiscal year 2008. Revenues from Europe, the Middle East and Africa, as well as from Asia grew strongly to represent 39% of total revenues in fiscal year 2008, compared with 37% in fiscal year 2007. Desktop revenues continued to decline to represent 32% in fiscal year 2008, compared with the 34% in fiscal year 2007.

3. (A) Dell’s liquidity is considered adequate with a consistently healthy level of operating cash flows as well as a moderate level of bond borrowings. In addition, Dell’s current assets continued to be sufficient to cover its current liabilities in fiscal year 2008.

(B) Dell’s leverage is viewed as rather high, with a debt to total assets ratio of 86% in fiscal year 2008.

(C) Dell’s profitability is considered high with a ROE of 73% in fiscal year 2008.

(D)